The Pension Disaster That Awaits

If Social Security fails, CFOs will have a serious problem on their hands, says former Fidelity fund manager and current Harvard professor Robert Pozen.

I’m afraid Social Security is a very polarizing issue. And my personal belief is that if there is not Social Security reform by 2011, when the baby boom goes into retirement, we won’t see it until 2038. The cardinal rule is you can’t touch people’s benefits once they go into retirement.

How do you think the Enron situation is going to affect Social Security reform?

It should reinforce the commission’s conclusions. There is a case where all the money was put in one spot — Enron stock. And we kept saying: diversification, diversification, diversification.

Besides diversification, what should be done to prevent future 401(k) debacles?

Employee participants should be able to sell employer stock that’s given as a match. There should be some reasonable waiting period, say a year. But Enron didn’t let employees sell until they were 50.

Second, there probably would have to be amendments to ESOPs, KSOPs, and [related] tax provisions. They should state that if some employees sell the stock and the plan goes below a certain amount, the firm doesn’t lose the whole tax benefit of the ESOP or KSOP. That shouldn’t be the price. The combination of those ideas would go a long way toward solving the problem.

Enron obviously has Congress riled up. They are looking at the percentage of company stock in plans, lockdowns, and the idea of giving financial advice to employees. Does it make you nervous that Congress is getting involved?

It always makes me nervous when Congress responds to a crisis. And if Congress understood that some of these proposals might decrease employer matches, they wouldn’t think they were such good ideas.

Do you foresee the uproar over Enron leading Congress to increase senior management’s fiduciary responsibilities?

I doubt there will be legislation. The courts will be the ones to decide. But it’s the concern corporate officials will have about their [potential] liabilities that will change their attitudes [on fiduciary responsibility].

Any chance 401(k) changes will be a hot issue this proxy season?

Auditor assignments will be a hot issue, and maybe employer stock, but not management of 401(k)s.


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